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However harmonious the end-goal, the merger, in and of itself, is an act of disruption. A current of change flows across the landscape of both organizations: new management roles and responsibilities, new culture, new competencies, new customers, and often new brand and value propositions arise.
All of this turbulence begins as a quiet and controlled ambition designed by few but in service of many. A merger originates at the top levels of the organization, behind closed doors—it may be a boardroom topic introduced in the context of growth or a competitive action, but always in a contained and deliberate manner. Initial conversations may expand into a casual but orchestrated talk between CEOs to gauge the mutuality and chemistry of the proposed merger. The process of courtship is measured, exclusive—and often inconsequential. But once a nod of consent is expressed, the architects of change go to work.
These small bands of bankers, lawyers, consultants, and regulators debate, negotiate, and create the anatomy of the new entity on behalf of a vast universe of employees, customers, clients, and shareholders. The futures of many are shaped within a closed circle. This has been the formula for thousands of deals, many resulting in questionable value creation, and few with irrefutable success.
The problem is that this process is not democratic.
The Board of Directors of a publicly traded corporation has a fiduciary responsibility to represent the interests and well-being of the shareholders. This is a non-negotiable governance that is core to how corporations manage and navigate change. The shareholder is often the last constituent of a merger who has a say, shareholder approval has historically been a rubber-stamp exercise confirming the sentiment of CEOs, lawyers, bankers, regulators, and the media.
However, shareholders are not a silent majority—nor are they impotent: There have been ongoing examples of shareholders exercising sway when finally brought to the table. In particularly striking cases, a shareholders’ veto at the eleventh hour has prompted a significant increase in offer price, increasing the value to the seller. “Shareholder rebellions” are not a new phenomenon, but they’re a contingency that’s often overlooked. And shareholders’ voices will only get louder as they gain collective power on social media and through advocacy groups.
Companies must factor this new force of influence in the evaluation and construction of mergers. How these constituents are invited, informed, and embraced in the process of change needs to be better understood.
Some lessons in considering shareholders’ stake at the start will help dealmakers engineer powerful alliances that create value for “the all”:
In the final analysis, mergers are a potent vehicle for creating multiple value streams: employees inherit new career opportunities, customers look forward to new and enhanced products and services, and shareholders anticipate continuous growth in share price and dividend distributions. However, it’s how an organization manages transition during a merger that will determine the ultimate disappointment or satisfaction of everyone involved.
Check out our whole M&A Series: