Takeover Case Study: Failed Strategy

By Scot Herrick | Job Performance

Nov 11

Most companies fail because they choose the wrong strategy for the environment or because they fail to execute the chosen strategy. The outward and visible strategies offer much wisdom about how companies succeed and fail: General Motors has a strategy of selling large trucks and SUV’s. Lehman Brothers had a strategy to own derivatives and CDO financial instruments to increase their margins. See how well that is working out for them…

These strategies – the “mission statement” strategies – are often not the event that brings a company to failure. Instead, it is the less visible strategy that brings the company down: the “remain an independent company” strategy.

Yes, the Board and Management have an ego problem – and it can kill your career.

Most companies do not last a lifetime. In fact, most don’t even last as long as you did going through college to get your degree. Which is why it is crazy to rely on your company for your retirement… Sure, there are exceptions, but public corporations have an obligation to maximize shareholder value – and nothing else. Not customers, not employees, not you, but shareholders.

But there are quite a few Board of Directors, including the Corporate Management members, who like their positions and the money that comes with them. For them, staying an independent company is critical to their success – and not the shareholders.

Let’s review three examples and what it meant for employees:

Ameritech

Ameritech, for those that are not familiar, was a Regional Bell Operating Company (RBOC) operating in the Midwest. It was regulated, profitable, and well managed. There was no reason to sell the company to someone else; they were doing fine.

At an all-management meeting, when rumors were answered by the CEO, the question came up of staying an independent company. Who, as a manager or an employee, want to go through a merger and the hassle that happens from it?

The CEO’s answer was enlightening: “How many of you own stock?” Everyone raises their hands because we have restricted stock and options. “Since the stock is selling today for $42, how many of you would be willing to sell your stock for $200 a share?” Ummmm….everyone would. “So the question isn’t about staying an independent company; it’s about the price. That is why selling the company is always on the table as an option.”

Ameritech was eventually sold to SBC Communications, the forerunner to the current AT&T, for a 35% or so premium to market. Was the culture lost in that transaction? Yes. Did I leave my job because I didn’t like it? Yes. But, was it good for me and the other shareholders? Yes.

No ego in the Boardroom of Ameritech.

WaMu

Contrast that with the position of Washington Mutual. Washington Mutual has always had a strong preference to remain an independent company. In fact, the Board of Directors even passed a resolution to stay an independent company.

About one year later, they were forcibly taken over by the FDIC and sold to JPMorgan Chase. This, after tens of thousands have been laid off and more to come as a result of the merger on December 1st.

For shareholders (I never kept any WaMu stock; I always sold it when it vested), they watched their stock price go from $44 to about fifteen cents.

The ego in staying an “independent company” resulted in total loss to shareholders and an employee base that is still in shock from the takeover.

Yahoo!

Which brings us to the number one web site on the planet. Yahoo! is looking to build margins and growth and, like Microsoft, is getting killed in the advertising market by that Google thing. Google has 70% of the market and Yahoo! has about 10%.

But Yahoo! wants to stay an independent company. Witness the behavior during this year.

Yahoo! essentially bullies Microsoft on their offer earlier this summer to the point where Microsoft kicked them to the curb. Then Yahoo! tried to enter into an agreement with Google on the advertising – a partner, not an owner – and Google just kicked them to the curb. Yahoo! then tried to go back to Microsoft to work something out, but Microsoft and its CEO aren’t into beggars when Yahoo! could have been choosers.

And now, Yahoo! is hanging like a chad with no one to work with. Staying an independent company has cost shareholders dearly. From a 52-week high of $30.25 to Monday’s price of $11.83, shareholders are paying for the “independent company” strategy.

My prediction: Yahoo will shrivel into a third rate company with a huge Internet presence that makes very little money. And that means more layoffs, more dispirited employees and more first-rate knowledge workers leaving the company to rid them of a disaster in the making.

Conclusion

It is one scenario to choose a marketing strategy that fails due to timing or failed execution. It is another scenario to have a strategy that contains anything about keeping the company “independent.”

If your company has a strategy about staying independent, I’d start looking for a new position outside the company right now – while you still can.

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About the Author

Scot Herrick is the author of “I’ve Landed My Dream Job–Now What???” and owner of Cube Rules, LLC. Scot has a long history of management and individual contribution in multiple Fortune 100 corporations.