M&A Synergies Framework—Environment

Merging with a company in a different country requires an understanding of the regulatory environment, logistics and infrastructure.  However, one often overlooked obstacle to overcome for a successful merger is gaining the public’s acceptance. Negative publicity or opposition to the merger diverts attention and effort from core business concerns.

Public Acceptance

Foreign Relations. In any cross-border merger, the relationship between the merging companies’ home countries can impact the merger, especially “if a target is owned by government or state, [since] it may raise more political and public concerns.”[note]Jianhong, Z., Zhou, C., & Ebbers, H. (2011). Completion of Chinese Overseas Acquisitions: Institutional Perspectives and Evidence. International Business Review. 226-238[/note]  Merging companies should become informed about their country’s current relationship—as well as past history—with the country of their target company. This will allow for a better chance of success because “…political connections may play an important role in many of the world’s largest and most important economies.”[note]Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91(4), 1095-1102[/note]

In the merger between American company GE and Hungarian corporation Tungsram, disapproval from the Hungarian government caused problems for GE in the integration process:

Prior to GE’s involvement, an Austrian bank and the Hungarian government had jointly owned Tungsram. GE purchased the bank’s share and formed the joint venture with an ownership of 51%, which gave GE managerial control. Management at GE was confident that with this control they could make and implement decisions, which included cutting the workforce. GE did not expect the government to oppose its decisions, especially publicly, which caused a strain on the relationship.[note]Paik, Y. (2005) Risk Management of Strategic Alliances and Acquisitions between Western MNCs and Companies in Central Europe. Thunderbird International Business Review. p. 499-500[/note]

The Hungarian government’s opposition demonstrated that majority ownership alone was not enough to allow the controlling entity to make decisions; foreign relations play a role as well.

It is not always the target company’s government that opposes a transaction; opposition can and does come from the U.S. government. For example, the high bid from Chinese National Offshore Oil Corporation (CNOOC) for takeover of the U.S. company Unocol was considered very controversial, due to the Chinese government having ultimate control of CNOOC as well as allowing it to have advantageous, below-market interest rates. Resistance came from the U.S. Congress and even the Bush administration, eventually forcing CNOOC to withdraw its offer. [note]Wan, K; Wong, K. (2009). Economic impact of political barriers to cross-border acquisitions An empirical study of CNOOC’s unsuccessful takeover of Unocal. Journal of Corporate Finance, 15(4). 447-468[/note] Such resistance is typically more common with countries that under scrutiny by the U.S. government. Government policies, views, and potential interventions can diminish the appeal of M&A transactions. Companies looking to acquire should research the relationship their home country has with that of the target company to better understand the larger impact their merger may have on their home countries.

Public Perception. Public perception refers to the reaction of the general public to the cross-border merger and its implications. The opinions of the media and members of the public can be a warning or a helpful guide to merging companies. Many of the public’s frustrations come because they do not recognize the intended synergies, may be concerned about the economic impact, or may view the action as a national statement. If this is the case, the merging companies should take heed to the general opinion and focus on creating value and sharing information accordingly. There may also be positive responses to the M&A, which could indicate a promising opportunity or a growing market. It is important to realize that “how the investment communities react to the announcement of a merger or an acquisition may differ significantly from the reactions of employees or customers – if for no other reason than the interests of these constituencies are different, and sometimes at odds.”[note]Stahl, G. K., & Voigt, A. (2005). Impact of Cultural Differences on Merger and Acquisition Performance: A Critical Research Review and an Integrative Model . In C. L. Cooper, & S. Finkelstein, Advances in Mergers and Acquisitions. 51-82. Amsterdam: JAI Press Inc.[/note]  However, these differing opinions can be useful in deciding the direction of the merged company.

In some instances, customers and the general public might actually have the same reaction, which could strongly indicate the future result of the transaction. For example, Finnish consumers and the general public were upset by Microsoft’s acquisition of the “their” company, Nokia. The public reaction to the acquisition was emotional for Finnish people, since they were strongly attached to Nokia’s iconic brand. As one customer was quoted, “‘Nokia is one of Finland’s main brands and it’s what I tell people abroad—that Nokia phones are from Finland,’ she said. ‘Now I can’t say that anymore.’ Her thoughts? She might buy a Samsung phone next.” [note]Arthur, C. (2013). Microsoft’s acquisition of Nokia ‘has big symbolic value,’ says Finnish minister. TheGuardian. Retrieved from https://www.theguardian.com/world/2013/sep/04/microsoft-nokia-view-from-finland[/note] This type of response was widespread throughout Finland and preceded the eventual write-offs that Microsoft was forced to take, as well as the job cuts and discontinued products. Overall, the transaction is considered a failure, which was foreshadowed early on by the public’s response to the merger. Companies engaging in cross-border deal making should take public reaction seriously and make changes accordingly.


Location. The physical location and time zones of merging companies can influence the reality of achieving synergies. Cross border M&A requires determining a headquarter location for the newly merged firm. In addition, “a firm’s physical location (i.e., urban or rural areas), which determinates the easiness of transportation, can play an additional role in enhancing or hindering accessibility.”[note]Cai, Y., Tian, X., & Xia, H. (2015). Location, Proximity, and M&A Transactions. Journal of Economics and Management Strategy, 688-719[/note] Merging with a target company located in a rural area or a politically unstable area creates physical access issues, particularly with transportation for both employees and supply chain. Research also suggests that, “Physical proximity enables informal relationships to develop between staff in the merging organizations, which should facilitate the flow of information.”[note]Mendenhall, M. E. (2005). Mergers and Acquisitions: Managing Culture and Human Resources. Stanford University Press, p 67[/note] In mergers where headquartered companies do not allow for easy travel by employees, informal relationships cannot form and a divide often remains between the two company’s employees.

In the Upjohn Pharmacia merger, the decision to maintain three physically separate headquarters (Michigan, Milan, and Stockholm) created problems for communication.

The headquarters compromise created an inefficient bureaucracy whereby managers in London were directing autonomous operations in Michigan, Stockholm, and Milan from afar. Not only did the headquarters decision add to overhead costs, it also resulted in other unexpected costs. Information systems between the three centers were not consistent and thus many reporting functions were problematic and led to delays in applications for new drugs and unexpected currency risk exposure.[note]Belcher, T. & Nail, L. (2000). Integrations Problems and Turnaround Strategies in a Cross-Border Merger: A Clinical Examination of the Pharmacia-Upjohn merger. International Review of Financial Analysis, 226-227[/note]

Merging companies should carefully weigh the pros and cons of location decisions before determining a permanent headquarter.

Regulatory Differences. Differing statutes, legal requirements, due diligence processes, disclosure obligations and litigation issues may create unforeseen problems for merging companies. [note]Watchtell, Lipton, Rosen, & Katz. (2017). Cross-Border M&A – 2017 Checklist for Successful Acquisitions in the United States. Oxford Business Law Blog. Retrieved from https://www.law.ox.ac.uk/business-law-blog/blog/2017/01/cross-border-ma-–-2017-checklist-successful-acquisitions-united[/note] These different systems require complete adherence. Compliance could prove to be a costly, and perhaps confusing, hurdle for companies. Knowledge of the target company’s country’s regulatory rules and requirements can provide a considerable advantage to the acquiring company. As a loose guide, “There tend to be more written rules, regulations, and stress in high uncertainty avoidance cultures.”[note]Cheng, S. S., & Seeger, M. W. (2011). Cultural Difference and Communication Issues in International Mergers and Acquisitions: A Case Study of BenQ Debacle. International Journal of Business and Social Science, 62-73[/note] If the target company is considered to be in a high uncertainty avoidance culture, it is important to know they may have more regulatory requirements. Although the U.S. is not a particularly uncertainty avoidant culture, regulations can still prove onerous. Attorney checklists are often helpful in preparing for the legal hurdles that U.S. companies must clear.[note]Malleson, K. & Malleson, W. (2016). Cross-border M&A – 2016 checklist for successful acquisitions in the United States. Lexology.com. Retrieved from https://www.lexology.com/library/detail.aspx?g=f3d6fcdb-c41f-43f7-a302-c2eacf97e8a8; This publication provides a helpful M&A checklist compiled by legal experts and covering a variety of important regulatory topics.[/note]

American Dreyer’s and Swiss Nestlé felt the pains of getting merger approval from the United State’s Federal Trade Commission (FTC). Since Dreyer’s was considered a competitor in the premium and superpremium ice cream market, the FTC forced the company to sell product lines and restricted Dreyer’s expansion into certain markets so the company did not gain major control of the ice cream market. This meant they had to sell assets quickly to continue with the merger. “…Dreyer’s lost its ‘Dreamery,’ Whole Fruits, and Godiva brands to Integrated Brands. The NICC [Nestlé Ice Cream Company, LLC] lost many assets to Eskimo Pie Frozen Distribution. Furthermore, they did so at what many would consider a substantial discount. Because Dreyer’s and Nestlé were forced to give up assets, they were not in a position to bargain for a good price. This was definitely a downside of the merger.”

Previous: M&A Synergies Framework—Management

Next: M&A Synergies Framework—Accounting and Finance

[crp limit=”3″ heading=”1″ cache=”0″]