In previous posts I’ve highlighted key reasons why mergers are often ill-advised. Now comes news that last year’s much talked-about marriage of Kraft and Cadbury is turning out to be less fulfilling than expected.
When the merger was announced 14 months ago, I wrote a post entitled Will Cadbury give Kraft indigestion? Among other things, I said, “Most mergers do make sense on paper, yet many become spectacular failures. The reason? A lack of appreciation for just how difficult it is to integrate not only global operations, but two proud and independent workforces…I don’t know how anybody could forecast the costs associated with the fear, resentment and internal jockeying with which Kraft and Cadbury managers and employees are now having to deal. The fact that Britons consider Cadbury a national treasure that has been overrun by ugly Americans sure won’t help.”
I wish I could claim prescience on that one, but it wasn’t that hard to see coming. Sure enough, a couple of days ago the Wall Street Journal did a story checking in on the merger’s progress. Here’s how it summarized the situation:
“Things haven’t gone as well for Kraft. Cadbury sales have been slack, especially in the emerging markets where it was supposed to be strongest, says Bernstein Research analyst Alexia Howard. Kraft shares are up 8% since it won Cadbury, lagging behind the market’s 14% gain.
Kraft also had to bear the indignity of the U.K. Takeover Panel, the overseer of the deals market there. It officially censured Kraft and its advisers for closing Cadbury’s beloved Somerdale factory just days after pledging to keep it open.
Tuesday, Kraft executives will have to endure yet more rebuke, when British lawmakers hold hearings on Kraft moving high-profile U.K. jobs to tax-friendly climes of Switzerland. Already, the Daily Mail newspaper has enlisted its readers to send letters of protest and highlighted the company’s products to help readers boycott them. “Kraft Promises Have All Melted,” read one headline.”
It’s one thing for a big company to acquire one much smaller to gain access to a proprietary technology, process or customer list. That allows the dominant culture to assimilate the smaller company, absorbing bumps along the way. But when CEOs of giant corporations boast about “a merger of equals”, antennae should go up; their boast portends a mine-filled clash of titans.
Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of “When Growth Stalls: How it Happens, Why You’re Stuck, and What To Do About It.” Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/stevemckee.