Can you ensure a merger goes through smoothly? Can there be a process to the process? How does one learn--the hard way, like Jet Airways--or is there an easier way out? And most importantly, can you learn from others' experiences?
David Cote, CEO of the $30 billion Honeywell, says you can. In an interview to this writer in March, he said, "No one says we've got cash, let's burn it on acquisition. Instead, you hope that it's a home run." In his four-year reign at Honeywell, the former GE man spent $5.5 billion and notched up a staggering 37 acquisitions. And yet in his own words, Honeywell has been through some "mighty horrendous acquisitions" in the past.
Which brings us to Jet's Naresh Goyal. Could he have inculcated a few process lessons from the likes of David Cote? And at which points? If so, would the results have been somewhat different? The jury is out on this one, but the answer I feel is perhaps yes.
Naresh Goyal, according to one version, decided three weeks ago he wanted out of a proposed merger with rival Air Sahara. When he decided is immaterial. As is why he did it--reasons range from operational losses in Air Sahara to inability to raise funds. And of course, a sinking stockprice. Having done that, how has Jet handled the process?
A little digression. Pharma companies Matrix Labs and Strides Arcolab signed an MoU to merge with each other last June. The move was hailed as an industry trend-setter. Both Matrix Labs Chairman N Prasad and Strides Group CEO Arun Kumar are first-generation entrepreneurs. Prasad is a little older and has a battle-weary look about him. Kumar is younger and exudes boyish energy. Together, they seemed to hit it off.
A board meet to cement the deal was to follow the next month, in July. The meet happened but not the deal. In a surprise development, Prasad and Kumar emerged to announce they were dropping the merger. They disagreed on valuation, they said, but added they would continue to work together.
Interestingly, in the weeks between the unveiling of the Strides merger proposal and the abortive board meet, Matrix announced and concluded a $263 million buyout of Belgian generics firm Docpharma NV. So, the Docpharma buyout sailed through and the Strides deal did not. Was there a connection between the two ? Maybe, maybe not. But that was the end of the Matrix-Strides story. Both companies have been on independent acquisition trails since then.
To return to the Jet saga. If you take away the ownership and the nature of the product, it's a merger almost like any other. Even security clearances and regulatory dramas are not unusual, remember the GE-Honeywell mega merger was stymied by the European Commission.
Jet-Sahara was different. A curtain of opaqueness has hung over the deal from start. Both parties never issued a joint statement after the first one on January 19 this year. Jet did, to be fair, but mostly to deny reports or, like in the last one, to clarify that "it was still awaiting all the regulatory approvals and the fulfilment of all Conditions Precedent."
It's a little unusual when two companies do not or cannot update their joint constituencies. Particularly in this information-hungry environment. Considering both constituencies are affected by the silence of one. From a communications point of view, this attempted merger suffered and continues to do so, despite Sahara's confused grandstanding.
How do insiders react to a possible merger? A full internal buy-in is not mandatory. An entrepreneur's instinct and long-term goals may override internal opposition and external "high" valuation numbers. And indeed, there are mergers which have pulled through despite such forces. And there are those who did not. Cote says their study showed that "failed" mergers turned out to have substantial internal objections on record.
Now comes the exit point. Could Goyal have handled it differently? Sure. For one, both sides should have made a joint exit announcement--remember Prasad and Kumar. It's possible relations deteriorated beyond redemption, hence a court case.
In any case, Goyal should and still can be blunt about his desire for a mid-air course correction. He has every right to change his mind on a deal he or his colleagues don't like anymore. Guess what, even the stockmarkets are happy with that.
The good news is that Goyal has, seemingly, put his ego aside. But in going silent, possibly to leave space on the negotiating table, his franchise is suffering. As is Air Sahara. Which obviously is the worse off. There is no Cote theorem here except that he says Honeywell walks away from 90 per cent from their targeted acquisitions.
Acquisitions are not always about happy endings. Another Goel told me this. Ashok Goel of Essel Propack, who has several global acquisitions under his belt, says, "Never tell the target company things will be good or better. You are there precisely because they are not. Tell them that things could get tougher before it gets better."
And finally, investment banker R Sankaran had this plug for his fraternity. "Always rope in a big investment banking firm. They will strive doubly hard to save a deal. After all, they've got a reputation to protect, too."