Case Study of a Failed M&A—Concluding Thoughts on HP’s Acquisition of Autonomy

The Mergers and Acquisition Synergies Framework we developed includes measures from research on national culture by Geert Hofstede, Erin Meyer, and Sidney Gray. We used their data to show how cultural factors in cross-border mergers and acquisition can lead to success or failure. Our research is limited to national culture factors, yet as seen in a few instances above, corporate culture can be different from national culture. These differences can cause culture clashes of their own. Further research needs to be performed to explain the differences between national and corporate culture.

Even in the best of circumstances, M&A can be fraught with difficulties. Adding in the complexity of making deals across borders necessitates a greater level of diligence in every phase of the process. Whether the merger failed due to fraudulent accounting or incompetent management by HP,1 the HP Autonomy debacle shows how differences or even similarities in national culture can precipitate difficulties in the post-merger integration process. HP’s failure to properly integrate Autonomy exhibits how value can be destroyed when firms aren’t able to resolve cultural differences. Thus, we recommend that firms engaging in cross-border deal making include researching national culture’s potential impact on post-merger integration a part of the due diligence process.

Previous: Case Study of a Failed M&A-The Role of Accounting and Finance in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—The Role of Environment in HP’s Acquisition of Autonomy

The public had mixed opinions about the HP-Autonomy merger. Some shareholders felt that HP overpaid to acquire Autonomy, a sentiment picked up by the media. Many of the shareholders’ concerns were valid and stemmed from the lack of transparency concerning the deal.

Public Acceptance

Public Perception. The Cherokee have a proverb stating, “Listen to the whispers and you won’t have to hear the screams.” The quote is used to remind those in charge to be mindful of public feedback. Companies can receive feedback in a myriad of ways including increase (decrease) in share price and positive reactions from investment analysts and journalists. The rise of social media has increased the ability for the public to voice its opinions for and against cross-border deals. While most expressed interest for such a large acquisition, there were others expressing disapproval and confusion. One twitter user humorously noted, “Today at my kids (sic) kindergarten orientation the most OH convo was #HP/Autonomy and how it made little sense.”1 While many tend to discount the opinions of the layman, they can be an effective source of feedback: the public’s opinion was spot-on in the case of HP and Autonomy.

Overpayment.Just one month after HP announced its plan to purchase Autonomy, the media produced a plethora of reports revealing the public’s opinion that HP paid too much for Autonomy. The expression of this opinion can be seen by the fall in HP’s stock price throughout HP’s courting of Autonomy: “Between August 18, 2011 (the date the deal was announced) and October 3, 2011 (when the deal was consummated), HP’s market cap plummeted by $15 billion from $58.5 to $43.5 billion.”2 These opinions perhaps foreshadowed the write-down of Autonomy’s value just over a year after its acquisition. One writer simply suggests that Autonomy was not worth the value HP paid; “He overpaid for what is essentially a second-tier software company.”3 Another writer was more aggressive in his opinion by saying, “Of course it was absurdly high. An 80% premium to where Autonomy was trading in London! In fact, here is how newly-installed HP CEO Meg Whitman responded when asked if her predecessor overpaid: ‘It is what it is.’” 4 Whitman seemed to have the same mindset as a writer who said, “While most agree that HP overpaid for Autonomy, the deal is done and it’s got to make the most of it.”5 Since Autonomy had shown increasing growth over periods prior to the acquisition announcement, one writer mentioned that, “…HP, desperate to do a deal, simply overpaid for a company that was going to struggle to maintain its sales and earnings momentum and was deluded about its abilities.”6 This writer not only thought HP overpaid, but also thought that Autonomy would struggle to keep their sales as high as they had been.  Clearly, most of the public agreed that HP overpaid for Autonomy. This united opinion of overpayment may have been a warning for HP to work hard to create the value it expected from Autonomy.

Shareholders. A major indicator that the merger between HP and Autonomy might not work out came from the concerns of HP shareholders.7 Part of the reason that shareholders voiced opinions opposing HP’s acquisition decision relates to the overall lack of transparency HP demonstrated in its briefings to the public. “HP’s failure to communicate convincingly the benefits of the deal to its shareholders, as demonstrated by the significant fall in share price on the day of the announcement, was the start of the transaction’s downfall.”8 Shareholders were confused as to why HP purchased Autonomy when HP’s focus in the past was hardware and Autonomy was a software company. “‘I haven’t really seen a significant long-term vision from HP around Autonomy,’ she said. ‘This company acquisition is a completely different focus from HP’s roots.’”9 Shareholders were not made aware of the benefits Autonomy would provide and HP did not provide information as to the direction it was going in purchasing Autonomy. Because of this lack of communication, shareholders were against this merger from the beginning. In hindsight, HP should have heeded the public’s criticism of the proposed merger. While they possessed little ability to drop the tendered offer, they certainly could have used the feedback to guide their integration strategy. Instead, they failed to “hear” what the public was saying, and suffered as a result.

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Next: Case Study of a Failed M&A—The Role of Accounting and Finance in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—The Role of Management in HP’s Acquisition of Autonomy

Leadership changes at HP soon after the merger resulted in friction affecting employees in both companies. HP’s decentralized management style conflicted with the hands on approach Autonomy’s CEO Michael Lynch used. Autonomy’s entrepreneurial management method clashed with the HP’s entrenched hierarchical structure.


Leadership Turnover. Leadership turnover, or the act of changing CEOs during the acquisition or integration phases, is quite common for HP: it has a history of replacing its own CEOs soon after it acquires another firm.1 At the time of the acquisition of Autonomy, Léo Apotheker was CEO of HP. Apotheker’s vision for HP included entering the software industry while trying to exit the PC business.2 He moved his vision forward by purchasing Autonomy, but his time at HP was cut short when the board at HP fired him shortly after announcing the acquisition.3 In hindsight, firing Apotheker was probably not the best course of action; Michael Lynch and Apotheker had a working relationship built on a mutual background in computer hardware and through cooperating on the Autonomy acquisition. Lynch responded to Apotheker’s dismissal saying, “Autonomy was left to try to integrate into HP without the very people who had conceived of the acquisition and who were uniquely positioned to execute that integration.”4 The problems with changing management became obvious: the new leaders were not as invested in integrating the purchased company, and there was no longer an established relationship between new and old CEOs.

In addition to changing its own CEO, HP struggled to retain Autonomy’s management. One commenter highlights HP’s inability to maintain the management of its acquired companies saying, “HP has had similar problems hanging on to the bosses of other hi-tech firms it has acquired.”5 The change in leadership from Apotheker to Whitman left many of the top executives at Autonomy frustrated and disenfranchised, and subsequently the President, CFO, CTO, CMO, COO, and the head of Aurasma (a division in Autonomy which created an augmented reality technology) left the company shortly after Meg Whitman became CEO of HP.6 Lynch didn’t last much longer, departing just eight months after Autonomy was acquired.7 HP failed to recognize and learn that maintaining top management at its target company will give employees an example of how to act in the process of merging cultures. This change in management negatively impacted the operations of the combined company.

While HP wanted Autonomy’s culture, technology, and people, it did not realize that “acquiring a firm with a valuable knowledge-based resource…does not ensure that the knowledge is successfully transferred to or combined with the resources of the acquirer during acquisition integration.”8 The failure to retain the talent and knowledge is exemplified by the “estimated 25 per cent of Autonomy’s staff” which left within seven months of the merger closing.  In failing in the early stages to effectively communicate and integrate, many of Autonomy’s employees felt alienated and left – dealing a severe blow to an already tenuous union.  Four years after the acquisition (in 2015) one employee said, “Management is in constant flux due to frequent organizational changes, and will generally only communicate with engineers to ensure critical issues are getting immediate attention.”9 Thus, HP and Autonomy illustrate the fact that the effects of management turnover can be pervasive, long-term, and debilitating.

Large Power Distance vs. Small Power Distance. One sign of an emerging problem in mergers stems from the difference in organizational structure of the merging companies. According to Meyer and Hofstede, the U.S. is typically more egalitarian while the U.K. is more hierarchical.10 Even though the U.S. is relatively more egalitarian than the U.K., HP and Autonomy exhibit the opposite cultural norm—yet again. HP is an established company with many layers of management, whereas Autonomy was small and run mainly by its founder and CEO, Mike Lynch. HP is formed in a hierarchical structure which is necessary because of the size of its operations. In contrast, Autonomy had an egalitarian structure which links back to the roots of the organization: Lynch was still in charge and highly involved in every operation of the company. An article in Business Insider notes, “He ran this company like a small private company, he was involved in all facets of the company, he was extremely hands on.”11 The level of involvement Lynch had at Autonomy is surely impossible in a corporation as large as HP, and this difference caused tension between the two companies; “It is a classic case of entrepreneurial spirit curdled by the culture of big business.”12

Though national cultures differ with regard to individual attitudes toward preferred organizational structure, neither country exhibits a strong inclination towards highly uneven power distributions.13 Moreover, the UK scores a 35 on the power distance index (PDI) which “sits in the lower rankings of PDI – i.e. a society that believes that inequalities amongst people should be minimized.”14 As aforementioned, Autonomy operated with a relatively low amount of power distance prior to combining with HP. Initial communication from HP suggests that “HP made promises to leave Autonomy’s culture alone. ‘The lioness not rolling over her cub’ was how it was expressed by some HP executives. But over several months HP began to exert more control, leaving employees increasingly disgruntled.” Had HP respected Autonomy employees’ discomfort with uneven distributions of power, many of the “culture clashes” could have been avoided. This isn’t to say that employees from all nations exhibit strong intolerance toward uneven distributions of power. For example, Chinese employees tend to exhibit little discomfort with large levels of uneven power distribution – as evidenced by their score of an 80 on the PDI.15 The culture clashes exhibit the importance of tailoring the integration style in cross-border M&A. In this case, Autonomy employees saw a relatively egalitarian structure become increasingly more hierarchical, which made them feel alienated in the new organizational environment.

Next: Case Study of a Failed M&A—The Role of Behavior in HP’s Acquisition of Autonomy

Next: Case Study of a Failed M&A—The Role of Environment in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—The Role of Behavior in HP’s Acquisition of Autonomy

Autonomy’s work culture was different from what HP anticipated. HP found Autonomy’s culture to be more task–based and confrontational than HP’s culture. These behavioral problems were never resolved and resulted in friction and distrust.


Task-based vs. Relationship-based. Erin Meyer, author of The Culture Map, suggests that in business settings, the U.S. is more highly task-based while the U.K. is more relationship-based. A task-based culture focuses prioritizes getting the job done; whereas, relationship-based cultures need to build trusting relationships before work can be performed. In the case of HP-Autonomy these values were flipped, which could be a result of the maturity of the companies.

Although HP is a large company, Whitman appeared to be more concerned with building relationships than the typical bureaucratic CEO. After being named CEO of HP, Whitman said, “Relationships really matter. Not only your husband and your children, but the relationships you build along the way. It’s a small world, and always treat other people the way you would like to be treated yourself.”1 Whitman attempted to bring this relationship-based attitude into HP soon after her entrance as CEO; “One of the first things I did was tear down the fence and move all of our executives into cubicles. We now walk in the same door as the rest of our employees. This was symbolic of the kind of culture that we wanted to build.”2

Whitman was focused on bringing a relationship-based environment to HP, but this was a big difference compared to how employees at Autonomy were used to working. At Autonomy, Lynch was a task-based leader: “Business partners and attorneys close to the case paint a picture of a hard-driving sales culture shaped by Mr. Lynch’s desire for rapid growth.”3 Lynch cared more about getting the job done than he cared about building strong employee relationships. “Mr. Lynch is known as an exacting task-master with a ruthless attention to detail. People who have worked for him joke about “needing a hard hat” when called into his office.”4 This theory is supported by an unnamed executive who said Lynch, “told his people, Meg, anyone who’d listen, that HP should not get involved with Autonomy.”5 Lynch obviously did not care about building relationships with those at HP. “Mr. Lynch has little affection for US-style networking. Instead he relishes the pose of nerdy outsider, making waspish observations about Silicon Valley schmoozing.”6 The clash between Whitman’s relationship-focused versus Lynch’s task-focused style of leadership caused another cultural divide between HP and Autonomy.

Confrontational vs. Avoids Confrontation. Distinct cultures handle confrontation differently; some cultures welcome debate in order to create harmony while others see confrontation as rude. Meyer’s framework portrays the U.S. business environment as, generally, more confrontational than the U.K. However, Autonomy and HP’s characteristics contradict Meyer’s position. Autonomy’s environment is considerably more confrontational—with management described as confrontational towards employees. An employee review on Glassdoor stated, “The previous leadership prior to the acquisition by HP was confrontational and rough on employees but great energy has been spent to turn away from that legacy.”7 During interviews with the Wall Street Journal, former Autonomy employees, “describe [Lynch] as a domineering figure, who on at least a few occasions berated employees he believed weren’t measuring up.”8 Lynch has also been described as “a brilliant man known for his brutish office manner….”9

In contrast, Meg Whitman is calm under pressure and agreeable to employees. For example, in a shareholder meeting, Whitman responded to confrontational questions by simply stating HP just needs to keep doing better in the future.10 In this case, Lynch’s more confrontational manner conflicted with Whitman, and—as a result—it was hard for them to work together.

Previous: Case Study of a Failed M&A—The Role of Communication in HP’s Acquisition of Autonomy

Next: Case Study of a Failed M&A—The Role of Management in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—The Role of Communication in HP’s Acquisition of Autonomy

HP had little experience managing software and found the software business unfamiliar. HP ultimately made the decision to let Autonomy function as an independent unit. Consequently, effective communication between the two companies was not developed.

Information Availability

One indicator that HP’s acquisition of Autonomy would not yield the anticipated results is communication, or lack thereof, between the two companies. A key takeaway from Why Deals Fail: And How to Rescue Them is that “A high-quality communication plan is crucial to the success of a deal….”1 Elements of a high-quality communication plan include openness and principles vs. application based learning.

Openness. Correct implementation in the beginning of a merger, including open communication and integration of the two companies, is critical to the success of the combined entity. In this case, HP had trouble fusing Autonomy into its other operations from the start. Initially, HP left Autonomy to operate as its own unit.  One source noted that, “According to [Mike] Lynch, Autonomy has been kept quite autonomous in HP…,”2 while another noted, “Mike Lynch, who founded Autonomy in 1996, will continue to be chief executive of Autonomy, which will be run as a separate business unit. He reports to Ms. [Meg] Whitman.”3 Given this information, it seems that the integration of Autonomy was not a high priority. HP wanted to create more value with Autonomy by expanding its business into the software market, yet in failing to properly integrate Autonomy, HP forfeited many of the potential synergistic gains. In another instance, a source noted, “Autonomy employees were physically barred from entering HP facilities, and Autonomy was forced to go through the tedious process of becoming certified as a ‘partner’ before it could work with other HP divisions, exactly as it would if it was a third-party company.”4 In spite of the lack of integration, many former Autonomy employees complained that HP’s bureaucratic culture “made it difficult to get things done” and that the “endless series of conference calls and form-filling felt ‘like being water-boarded.'”5

The fault doesn’t rest solely on HP, however. The CEO and founder of Autonomy, Mike Lynch, seemed difficult to work with as well:

An HP executive [stated] Lynch was not interested in moving forward once the deal was completed. “He was at every strategy session, was in person or on video for every meeting of the executive council…He wouldn’t work with anyone. Sometimes he was enthusiastic, but other times he’d say, ‘This makes no sense. I’m going back to London.’”6

It is even said that, “at a going-away party, an H.P. lawyer presented Mr. Lynch with a sweatshirt with the word ‘integration’ and a line through it.”7 By limiting communication between themselves, HP and Autonomy inhibited their chances of achieving successful integration.

Previous: Case Study of a Failed M&A—Introduction to HP’s Acquisition of Autonomy

Next: Case Study of a Failed M&A—The Role of Behavior in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—Introduction to HP’s Acquisition of Autonomy

Shortly after Hewlett-Packard appointed Leo Apotheker to lead the company, the board approved the acquisition of the UK-based software company, Autonomy. Hewlett-Packard, well known for its computer hardware, thought the synergies it could have with Autonomy coupled with its brand recognition would give it a strong presence in the software market. This series explores management’s cultural misstep using the Mergers and Acquisitions Synergies Framework to examine how this acquisition ultimately lead to a failed merger.


On September 7, 2016 Hewlett Packard Enterprise Co. announced an $8.8 billion deal to sell the bulk of its software division to Micro Focus International PLC.  The deal represented the divestiture of Autonomy Corp—a software maker acquired in an $11.7 billion mega deal just five years prior. The marriage of the two firms was rocky from the onset, with HP’s shareholders decrying the 79 percent premium HP paid as abhorrently high.1 On November 20 of the following year, Hewlett-Packard announced an $8.8 billion write-down of its investment in Autonomy – citing “serious accounting improprieties… and outright misrepresentations.”2 The allegations of fraud were rebutted by Autonomy’s former CEO Michael Lynch and marked the beginning of a disastrously messy public relations battle fought by Autonomy’s ousted CEO and members of HP management.

In November 2010 Hewlett-Packard, a technology firm based in Palo Alto, California, brought in Leo Apotheker as its new CEO. Apotheker was expected to contribute to HP’s growth through completing value accretive acquisitions. Within a year of being hired, Apotheker spearheaded HP’s acquisition of Autonomy, a software company founded at the U.K.’s Cambridge University. The acquisition of Autonomy represented a marked shift in strategy for HP. While HP had demonstrated capability in the hardware market, they possessed very little prowess in software and computing. Thus, Apotheker attempted to catalyze HP’s entrance in the software market by buying an already well-established company.

Although HP claims that the write down was due to “accounting improprieties”3, there are other factors belying this failed merger. The remainder of this paper provides insight into the impact of cultural differences on the HP-Autonomy debacle, offers examples, and provides guidance about due diligence for cross-border mergers. This paper focuses on the cultural factors discussed in the M&A Synergies Framework: communication, behavior, management, environment, accounting and finance, optimism, and earnings management.

Next: Case Study of a Failed M&A—The Role of Communication in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—Concluding Thoughts on Microsoft’s Acquisition of Nokia

The research conducted in this paper is based upon the Mergers & Acquisitions Synergies Framework, developed by combining outside findings by Geert Hofstede, Erin Meyer, and Sidney Gray.[1] It is limited to national culture factors, which play a different role in business than organizational culture. Further studies may need to be conducted to help distinguish differences between national and organizational cultures.

In reality, Microsoft’s acquisition of Nokia was doomed to fail. The deal was an exercise in futility, governed by the rationale that any attempt to compete with Apple and Google is better than none at all. Such rationale exhibits an astonishing lack of prudence, which is key in making any deal, let alone a cross-border deal. While Microsoft’s rationale for making the deal was poor, management’s lack of patience was worse. Cutting 25,000 employees only two and a half years after acquiring Nokia’s mobile unit effectively killed any chance Microsoft Mobile had of succeeding.

Microsoft Mobile is a study of how differences in national culture can add to already poor conditions. Though differences in national culture are not the primary reason Microsoft Mobile failed, they did add to the complexity inherent in the post-merger integration process. In fact, the differences were small and could have been easily reconciled. Had Microsoft exercised a greater level of patience, Microsoft could have realized many of the sought-after synergies which can arise when companies effectively execute cross-border deals. Microsoft Mobile could have prospered as employees from different cultures came together and cooperated.

Previous: Case Study of a Failed M&A—The Role of Accounting and Finance in Microsoft’s Acquisition of Nokia

Case Study of a Failed M&A—The Role of Accounting and Finance in Microsoft’s Acquisition of Nokia

Nokia provided financial reports using IFRS while Microsoft reported using US GAAP.  Differences in national culture combined with different reporting requirements creates accounting and finance cultural differences.  These differences can lead to financial reporting misunderstandings and possible valuation problems.  Though there is little public information surrounding the rationale behind Microsoft’s valuation of Nokia, a consensus is that Microsoft paid too much for a company that had not been profitable for several years.

Accounting Methodology

Very little information concerning cultural differences within the accounting and finance fields is publicly available for this merger. There may have been some cultural conflicts due to differences in reporting standards; however, during the time of the acquisition, both Microsoft and Nokia were operating as global corporations, so each company already worked with integrating financial information from one country to another. Differences in accounting approaches between the U.S. and Finland are described below to provide context of the differences that could arise between these two cultures in the accounting and finance.

The fact that Microsoft Mobile was headquartered in Finland meant that they would have to translate their earnings from euros into dollars for Microsoft to report its consolidated earnings. Additionally, Microsoft Mobile would have to record accounting entries in IFRS for national reporting purposes but then translate its financial statements to comply with US Generally Accepted Accounting Principles (GAAP). The complexity of accounting for differences in international taxes, accounting methods, and reporting requirements is a reality faced by any multi-national entity.

Accounting Standards. As a member of the European Union, Finland adopted the International Financing Reporting Standards (IFRS) in 2005.1 IFRS is principles-based in nature, leaving more room for management to use judgement in interpreting, recording, and reporting economic transactions. The U.S. follows GAAP, which, many consider to be more rules-based. Consequently, management tends to follow specific rules instead of looking at the economics of a single transaction.2 The U.S. has considered the idea of adopting IFRS, but the Securities and Exchange Committee has signaled that moving from GAAP to IFRS is unlikely to happen.3 The implication of the U.S. adopting IFRS would allow for easier preparation for financial statements for multi-national entities, such as Microsoft. The impacts of differing accounting method for deals akin to Microsoft’s acquisition of Nokia’s mobile phone unit are relatively muted. One area of concern for cross-border deal makers is how accounting is practiced. As GAAP is heavily rules-based, there is little room for professional judgement. In contrast, IFRS (used by Nokia) allows for considerable judgment. Room for professional judgment leads to a greater diversity of practice among accountants, which can lead to potential discrepancies.

Valuation. Microsoft saw Nokia as a gateway into the mobile phone industry. Because of this vision, Microsoft seemingly overvalued Nokia and subsequently overpaid for the acquired company. Since that time, Microsoft has written off most of the purchase price from the deal.

At the time the deal was announced, Microsoft proposed purchasing Nokia’s Devices and Services for EUR 3.79 billion and purchasing the license to use Nokia’s patents for EUR 1.65 billion, for a total purchase price of EUR 5.44 billion. (In U.S. dollars, this price equated to about $7.2 billion.)4 Along with other factors and fees associated with the acquisition, the entire purchase price grew from $7.2 billion to $9.4 billion. According to Microsoft’s annual 2015 report, the total price included: $7.1 billion purchase price plus Nokia’s repurchase of convertible notes of $2.1 billion plus liabilities assumed of $0.2 billion.5 What Microsoft didn’t fully realize at this point in the agreement was that Nokia had been losing revenue for the past few years and was failing. “By 2012, [Nokia] was actually a drag on [Finland’s] GDP. Taxes paid by Nokia went to zero. And recently, Samsung began outselling Nokia phones even in Finland.”

One reason that Microsoft overpaid for Nokia is that they were in a scarce market. Microsoft was feeling pressure from Apple and Samsung and feared being left behind. To compete in the market, Microsoft was left with the choice to build a mobile phone unit from scratch or acquire a well-established company. Microsoft made the decision to buy one of the few already established firms. Amazon shows what could have happened had Microsoft entered the mobile phone industry without an established partner. In 2014, Amazon released its own smart phone, the Amazon Fire. Amazon’s attempt to enter the mobile phone industry also fared poorly, as indicated by the $170 million write-down they took relating to the Amazon Fire at the end of 2014.6

Microsoft’s failure to value Nokia’s mobile phone division led to truly disastrous results. Given what we know of Nokia’s rocky financial foundation, the deal was doomed to fail. The amount that Microsoft paid for Nokia has slowly been written off each year since the acquisition finalized. In 2016, Deutsche Welle (Germany’s international broadcaster) stated, “Nadella has already written off most of the Nokia deal struck by his predecessor Steve Ballmer in 2014. Earlier this month, it agreed to sell its feature phone business to a new Finnish company HMD Global and Foxconn Technology Group from Taiwan for $350 million.”7

Professional Behavior

In terms of behavior, both the U.S. and Finland have established professional associations where accountants are accredited to provide assurance services regarding a company’s financial position. Having an established accounting association adds to the professional practice of judgment rather than one reliant on statutory control.8 While both U.S. and Finnish accountants are flexible in practice, Finnish accountants tend to display a greater amount of uniformity with regard to professional practice than Americans.9

In the accounting profession, optimism refers to a societies’ method of valuing assets and recognizing revenue and expenditures. Accountants in countries displaying stronger inclinations toward optimism are more likely to recognize revenue early and value assets at a higher level than accountants in countries where conservatism is practiced. In both cultures, asset measurements and profit reports are more optimistic than conservative indicating that both cultures lean on the side of risk-taking. Still, American accountants tend to be even more optimistic than their Finnish counterparts.10

Another key aspect in the practice of accounting is the dichotomy between secrecy and transparency.  Both Finland and the U.S. are transparent in financial reporting, with the United States being more transparent in how companies report and disclose financial information. Interestingly, societies demonstrating greater amounts of transparency in accounting culture are “societies where more emphasis is given to the quality of life, people, and the environment, will tend to be more open.”11

Fraud and Earnings Management. According to Transparency International, a global group that measures national corruption, fraud is very low in Finland compared to the U.S. Each year, Transparency International creates a Corruption Perception Index, where countries around the world are rated in terms of corruption and inequality. In 2013 when the Microsoft-Nokia merger was announced, Finland was given a rating of 89/100, whereas the United States was rated as 73/100.12 Scores approaching 100 indicate that a country is “very clean.”

Historically, Finland has had very little to no corruption. Since Microsoft acquired Nokia there has been no report of fraud or of earnings management on either side.

Previous: Case Study of a Failed M&A—The Role of Environment in Microsoft’s Acquisition of Nokia

Next: Concluding Thoughts about the Microsoft-Nokia Merger

Case Study of a Failed M&A—The Role of Environment in Microsoft’s Acquisition of Nokia

The citizens of Finland were unhappy with the announced Microsoft-Nokia merger.  The Finns had long felt national pride from Nokia’s success. Giving up control of this national company to a foreign entity was blow to their identity.  Microsoft did little to alleviate the Finns’ concerns.

Public Acceptance

Public Perception. News and media critics (as well as citizens) in both the U.S. and Finland expressed dislike for Microsoft’s acquisition of Nokia’s mobile unit. From Microsoft’s perspective, many viewed the deal as a gamble – and a poor one – as Nokia was perceived as a dying company. In fact, many decried the deal as a desperate attempt to get into the mobile phone market and gain market share from Google and Apple.

People in Finland reacted very critically towards the acquisition. Nokia was seen as one of Finland’s most successful companies, even though its market share had been declining. The sale of Nokia’s phone division “was a huge psychological blow for Finland and the self-confidence of the Finnish people.”1 The deal left many Finns with a sour taste toward Nokia. One Finns’ reaction to the acquisition displays Finnish resistance to the deal: “‘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.’”2

As Finns saw one of the biggest and most powerful companies from their nation swallowed by an American company, it was an emotional blow to their national pride. Nokia had been one of the biggest contributors to Finland’s GDP and now it would no longer be considered a “Finnish company” but would merely be a cog in an American corporation.


Location. With permission from Nokia’s leaders, Microsoft Mobile decided to take over Nokia’s original headquarters located just outside of Helsinki, Finland. One spokesperson from Nokia said, “As the majority of employees currently working at our corporate headquarters are focused on devices & services activities and support functions, Nokia House will become a Microsoft site once the deal closes.”3 Similar to before the acquisition, employees of the new merged company would have to fly to Finland in order to help with decision making or make long-distance calls at hours outside of the normal work day to compensate for the 10-hour time zone difference.

Regulatory Differences. Since the U.S. and Finland share a positive relationship, no lengthy legal procedures were required on either side of the acquisition. The only regulatory term discussed in the press was the lack of communication between the two companies and the public regarding the merger. As one reporter stated, “Neither party was legally allowed to discuss details about the acquisition in public.”4

Previous: Case Study of a Failed M&A—The Role of Management in Microsoft’s Acquisition of Nokia

Next: M&A Synergies Framework-The Role of Accounting and Finance in the Microsoft-Nokia Merger

Case Study of a Failed M&A—The Role of Management in Microsoft’s Acquisition of Nokia

Management turnover during the period surrounding an acquisition is challenging, particularly when new leaders don’t share the same passion for the merger.  Leadership change created uncertainty for Nokia employees. Announced layoffs coupled with differences in leadership style created more suspicion and distrust of those leading the merged companies. Had Microsoft been sensitive and aware of differences in the way Nokia employees view and interact with management, many problems could have been avoided.


Leadership Turnover. Many Microsoft managers moved to executive positions in Nokia right before the acquisition. Stephen Elop, a former employee of Microsoft, joined Nokia as the company’s CEO and President in December 2010. Elop joined the Finnish company with the mandate to reclaim lost market share and increase profitability. Not even three months later, in February 2011, Nokia announced a partnership with Microsoft; this entailed Microsoft’s software being used on all Nokia devices. After a few years, Microsoft decided to turn its partnership with Nokia into an acquisition. September 2013 marked the beginning of the new Microsoft Mobile (the merged Microsoft and Nokia venture). With the acquisition, many executives from Nokia moved over to the newly-created Microsoft Mobile. This included Elop, who moved companies to become the Executive Vice President of Microsoft’s devices division.

Soon after the acquisition was complete, Steven Ballmer (then CEO of Microsoft) announced his decision to step down as CEO. He was succeeded by Satya Nadella. One critic claimed, “Mr. Ballmer agreed to the deal as he was stepping down as chief. It was almost a fitting dud to end his tenure.”1

Management turning over from Ballmer to Nadella meant that the newly formed Microsoft Mobile division would begin operating without the executive that pioneered the acquisition of Nokia’s mobile division. Worse still, Nadella displayed little interest in the Microsoft Mobile division and even “announced a strategy shift away from a ‘devices and services’ focus” a few months after acquiring Nokia.2 The management turnover, as well as the commentary on moving away from devices, dealt a psychological blow to Finnish employees, impairing their ability to design innovative products.

Employee Turnover. In addition to acquiring Nokia’s ailing mobile phone division, Microsoft acquired 32,000 employees.3 The employees functioned as part of Microsoft Mobile, though they were headquartered in Finland. This move may have been destructive because the Nokia employees were “coming from a completely separate culture.”4 While it can be difficult for employees to adjust to a new corporate culture, they can eventually thrive. However, it does take time for employees to acclimate. It is apparent from the quantity of cuts that Microsoft had little patience for its Microsoft Mobile experiment. Microsoft’s lack of patience is displayed by the number of layoffs related to Microsoft Mobile: 12,500 (July 2014)5, 7,800 (July 2015)6, 1,850 (May 2016)7, and finally, 2,850 (July 2016).8 In just three short years, Microsoft cut 25,000 jobs from Microsoft Mobile.  The layoffs led to a severe brain drain, depleting the human capital that Microsoft paid so much to acquire.

 Large Power Distance vs. Small Power Distance. Both Finland and the U.S. fall on the small power distance side of the scale. This indicates that people within an organization are less likely to accept hierarchical authority. In the case of these two countries, Finland is even lower on the power distance scale than the U.S., indicating that power is more decentralized in Finland than in the U.S. Thus, employees in Finnish companies tend to prefer and operate with more autonomy than those working for American firms.

This small difference between cultures led to problems when Microsoft merged Nokia’s mobile phone unit into its operations. “The combination of the two companies has created more disconnects and mistrust than continuity or synergy. There is (sic) lots of politics and click-ish behavior throughout all levels.”9 With power more equally distributed between organizational levels, it was easier for Finns to become closer with upper management and create a siloed atmosphere for the Americans coming into the merged company. Management did not provide any help in this regard; in fact, management created a sense of fear that permeated the company creating more distrust and confusion among employees and executives. “A culture of status inside Nokia made everyone want to hold onto power for fear of resources being allocated elsewhere or being demoted.”10

 Decision Making

Consensual vs. Top-Down. Finns are very consensual in their decision making; decisions are made as a group. The process of making decisions can be time consuming because each person within the group is consulted, but when the decision is made, it is implemented quickly and is generally inflexible to change.11 In the case of Nokia, decisions were made collectively with the executives in Finland. One employee commented that Nokia is “focused on the Finnish way of doing business.”12 Another former employee in the U.S. described Nokia as a “ship that can be slow to turn — patience, persuasion, and often travel to Finland are required to initiate change.”

Since the U.S. is a top-down decision-making culture, Americans working with Nokia before the merger found it hard to work with the “Finnish way” of decision making. Employees in the U.S. are used to short discussions and more implementation while Finns are slower and more detailed in the decision-making process.  Even though Microsoft is a U.S.-based company, Microsoft Mobile was headquartered in Finland, allowing the Finnish mindset of consensus decision-making to persist.

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